09-02 Audit of Contracts Processes
Description
AUDIT OF CONTRACT PROCESSES Exit Conference Dates: July 29, August 11, and August 14, 2008 Release Date: October 16, 2008 Report No. 09-02 CITY OF ORLANDO OFFICE OF AUDIT SERVICES AND MANAGEMENT SUPPORT Beryl H. Davis, CPA, CGFM, Director Audit Services and Management Support Mona S. Mellon, CPA Audit Program Manager Jessica Dlugolinski Auditor III Emily Rouse Auditor II TABLE OF CONTENTS Memorandum .................................................................................................................................................. 1 Executive Summary ........ 3 Background .................... 12 Summary of Recommendations and Responses ........................................................................................... 14 Issues and Recommendations ....................................................... 17 Capital Improvement and Infrastructure Contracts – Administration ..................... 18 Create City Policies and Procedures for CIID ............................................................................................................ 18 Update CIID’s Internal Policy Manuals ..................... 21 Utilize a Project Charter to Specify the Allocation of Project Duties between CIID and Clients .......................... 22 Review CIID’s Rates Billed to Clients and Service Mix ............................................................................................ 23 ...
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| Publié par | Nuzong |
| Nombre de lectures | 16 |
| Langue | English |
Extrait
AUDIT OFCONTRACTPROCESSES
Exit Conference Dates: July 29, August 11, and August 14, 2008 Release Date: October 16, 2008 Report No. 09-02
CITY OFOALRODN
OFFICE OFAUDITSERVICES ANDMANAGEMENTSUPPORTBeryl H. Davis, CPA, CGFM, Director Audit Services and Management Support Mona S. Mellon, CPA Audit Program Manager Jessica Dlugolinski Auditor III Emily Rouse Auditor II
TABLE OFCTNETSON
Memorandum .................................................................................................................................................. 1Executive Summary ........................................................................................................................................ 3Background .................................................................................................................................................... 12Summary of Recommendations and Responses ........................................................................................... 14Issues and Recommendations ....................................................................................................................... 17Capital Improvement and Infrastructure Contracts–Administration..................................................... 18Create City Policies and Procedures for CIID ............................................................................................................ 18Update CIID’s Internal Policy Manuals21.....................................................................................................................Utilize a Project Charter to Specify the Allocation of Project Duties between CIID and Clients .......................... 22Review CIID’s Rates Billed to Clients and Service Mix............................................................................................ 23Create City Policies and Procedures for Transportation Department .....................................................................25Produce Contract Data and Reports for Management ............................................................................................. 26– Capital Improvement and Infrastructure Contracts Management ....................................................... 28Create Tools to Document Key Steps Performed ..................................................................................................... 28UpdateProject Information Regularly on the City’s Website................................................................................. 29Ensure that Fiscal Data Submitted to Council for Contracts and Amendments is Complete ................................ 31Develop a System for Submission of Contract-Related Documents to the City Clerk ........................................... 32Define the Requirements for Designating and Utilizing Contingency Amounts ................................................... 34Delineate when a Change Order is within the Contract Scope and Define the Approval Process ........................ 36Define the Conditions for Renewal or Extension of Consultant Agreements ........................................................ 38Ensure Change Orders and Change Requests are Timely Processed ...................................................................... 39Provide for Rapid Response Contract Approvals and Accountability ..................................................................... 41Conduct Post Mortem Review of Contract Activities ............................................................................................... 42Real Estate Contracts................................................................................................................................ 43Revise Policy to Provide for Certified Staff Appraisals ............................................................................................ 43Exhibit–Contracts Tested ........................................................................................................................45
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MEMORANDUMTo:Byron W. Brooks, Chief Administrative Officer Rebecca W. Sutton, Chief Financial Officer Alan R. Oyler, Public Works Department DirectorRoger D. Neiswender, Director of Transportation Thomas R. Connery, Capital Improvement & Infrastructure Division Manager Alana C. Brenner, City Clerk From: H. Davis, CPA, CGFM, Director Beryl Office of Audit Services and Management Support Dates: Conference: Exit 29, August 11, and August 14, 2008 July Release: October 16, 2008 Subject: of Contract Processes (Report No. 09-02) Audit In accordance with our annual operations plan, the Office of Audit Services and Management Support has performed an audit of contract processes of City government. The objective of our audit was to determine the adequacy of City Policies and Procedures and internal controls over major City contracts. We conducted this audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We did not test the accuracy of data gathered from computer-based resources but, rather, utilized the information to make a judgmental selection of payments for testing. The scope of this audit included construction-related contracts performed within the Public Works Department, contracts related to City real estate acquisitions, and other major contracts based on dollar amounts expended. We reviewed the adequacy of and compliance with appropriate City Code, City Policies and Procedures and internal controlsover the City’s contract award/acquisition, creation, oversight and renewal processes. The Exhibit on page 45-46 lists the 24 contracts we selected for testing. All of these contracts were active during the fiscal year ended September 30, 2007; most of them spanned multiple years. We did not test contracts related to cash receipts or non-monetary contracts. We did not test contractors’ but, rather, performancethe procedures followed by City personnel. Our scope did not include a review of all procedures that may apply to contracts, but focused on selected procedures as outlined in the Background section of this report.
Based upon our tests and inquiries we determined that, on the whole, City Policies and Procedures and internal controls are adequate to ensure that contracts are in place if required; they are properly procured/awarded; and they are created in accordance with appropriate policies. However, we found some exceptions during our testing and this report identifies a number of recommendations to improve controls over City contracts. Our examination confirmed a need for greater coordination of the procurement and fiscal aspects of the contracts management processes. As provided by City Code, most of the City’s contract-related procurement activity comes under the oversight of either the Director of Purchasing or the Public Works Director. As there is limited guidance in City Policies and Procedures for the complex procurement-related decisions overseen within the Public Works Department, many of the recommendations in this report are linked to the need to provide such policies and procedures. Further, in conjunction with the transfer of the Office of Purchasing and Materials Management to the Finance Department planned for October 1, 2008, we believe that this would be an opportune time for a global review of all ofthe City’s procurement processes.We suggest that the Chief Administrative Officer and the Chief Financial Officer evaluate and work with the Departments and Offices involved in procurement to determine the most effective procurement processes Citywide. We would like to express our appreciation to the City employees consulted during this audit for their courtesy and cooperation. BHD/am c: Honorable Buddy Dyer, Mayor Mayanne Downs, City Attorney Jody M. Litchford, Deputy City Attorney Kevin J. Edmonds, Deputy Chief Administrative Officer Deborah D. Girard, Deputy Chief Administrative Officer Conrad C. Cross, Chief Information Officer Laurie J. Botts, Real Estate Division Manager Jon D. Mead, Director of Purchasing and Materials Management Charles A. Ramdatt, Transportation Engineering Division Manager
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EXECUTIVESUMMARYObjectives andThe objective of our audit of contract processes was to Scopedetermine the adequacy of City Policies and Procedures and internal controls over major City contracts, based on dollar amounts expended.
The scope of our testing included: construction-related contracts performed within the Public Works Department; contracts related to City real estate acquisitions; and other major contracts.
e did not test contracts related to cash receipts or non-monetary contracts. We did not test the performance by contractors but, rather, the procedures followed by City personnel. Our scope did not include a review of all procedures that may apply to contracts, but focused on selected procedures as outlined in the Background section of this report.
MethodologyOur methodology included a review of the adequacy of and compliance with appropriate City Code, City Policies and Procedures and internal controls over the City’s contract award/acquisition, creation, oversight and renewal processes. e tested seven major Public Works contracts, five Real Estate acquisitions, and twelve major City contracts (ten payees). We used data obtained through the Technology Management Division to determine the parties that received payments exceeding $2 million from the City’s main operating nk account during fiscal year 2007, to assist with making the selection for testing.
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ConclusionsBased upon our tests and inquiries we determined that, on the hole, City Policies and Procedures and internal controls are adequate to ensure that contracts are in place if required; they are properly procured/awarded; and they are created in accordance with appropriate policies. However, we found some exceptions during our testing and this report identifies a number of recommendations to improve controls over City contracts.
CAPITAL IMPROVEMENT AND INFRASTRUCTURE CONTRACTS–ADMINISTRATION Create City PoliciesCity Code exempts the acquisition of construction-related and Procedures forservices from the procurement processes of the Office of CIID Purchasing and allows the Public Works Director to create Page 18such processes. For construction-related procurement, City Policies and Procedures contain limited guidance over the Capital Improvement and Infrastructure Division’s (CIID) operational and oversight processes. We recommend that the Public Works Director establish City Policies and Procedures to inform and guide departments that CIID serves, regarding contract creation, management, and fiscal oversight.
Utilize a Projecthen project design, procurement, management, monitoring, Charter to Specifyare the Allocation oor fiscal responsibilities (traditionally performed by CIID) Project Dutiesinstead divided between CIID and a client, City Policies and between CIID and itsProcedures do not indicate how this should occur, nor has ClientsCIIDadopted a ―project charter‖ or other written Page 22documentation for this purpose. We also found that there is a changing dynamic in the provision of construction improvements, and a need for clarification of the duties in
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these projects. We recommend that the CIID Division Manager adopt a project charter or other guidance to be used hen project responsibilities are divided between CIID and its clients.
Review CIID’s Rates to the above circumstance where project Related Billed to Clients andresponsibilities are divided between CIID and its clients, we Service Mix learned that CIID has reservations regarding clients that wish Page 23to take on some of the duties typically performed by CIID. This affects CIID’s revenues. As an Internal Service fund,CIID is required to bill its clients enough to pay for its personnel and other costs. The revenue brought to CIID for its services is sed on hours worked by Project or Construction Managers; fiscal and administrative management services are not billed. In addition, workflow and other aspects of such projects may no longer be under the control of CIID management.
e recommend that the CIID Division Manager review and discuss with the Public Works Director: (1) the formulas for pricing CIID services to clients; (2) the mix of services it provides to clients; and (3) the resources to provide the needed services. The Public Works Director should discuss the services and pricing for certain projects with the City’s Department Directors and, if necessary, the CAO and the CFO.
Create City PoliciesCity Policies and Procedures do not discuss Transportation s ’ andPraoncsedurteasforoperations, such as contract responsibilities or operations. We or TrDeppartmtieonntrecommend that the Director of Transportation develop and P e 25adopt City Policies and Procedures regarding Transportation ag
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Department functions and responsibilities.
Produce ContractCIID does not presently have an effective method to create DataandMaRneapgoertmsefnotrand maintain a comprehensive list of contracts and projects in progress with dollar amounts being managed. We recommend Page 26contract data about all CIID contracts andthat CIID produce projects for management review.
CAPITAL IMPROVEMENT AND INFRASTRUCTURE CONTRACTS–MANAGEMENT Create Tools to Numerous steps are required to create and execute DocumentPKeerfyoSrtmeepdsprofessional services and construction contracts. These contracts involve complex work and laws, often continue over Page 28long periods of time, and are subject to changes in oversight personnel. This causes a risk that some procedures might not performed or timely performed.
e believe that controls and efficiency could be improved, thus possibly saving time and dollars, by adopting systematic methods such as checklists to document that all appropriate steps are timely performed. Ideally, checklists would outline and document what is done for each contract through all its stages. We recommend that CIID create tools to document key steps that are performed and monitored by the Project Managers, Construction Managers, Inspectors, and others.
Update ProjectCIIDhas posted on the City’s Website data that appears to Informationrepresent the status for each of the City’s current construction Regularly on theproj s. However, we determined that the list of projects and City’s Websiteect 29contracts is not complete, and in several instances the data Page
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as not up to date. We recommend that the CIID Division efficiently capture and post on the City’s Website updated information about all CIID managed projects and contracts on a regular basis.
Ensure that Fiscal is important for departments requesting approval for It Data Submitted tocon efficienc rmation Council for Contractstracts to provide the fiscal and y info and Amendments isrequired by the City Council Agenda Item form. We noted the Completeexplanations that CIID presented on the face of the City Page 31Agenda Item form gave a general description andCouncil amount for the contract or amendment being presented, but did not include the contract history. On the Fiscal Impact Statement we also noted that future maintenance or operating costs generally were not shown. To make data more accessible to City Council, we recommend that the Public Works Director ensure that the City Council nda Item form includes the original contract amount and all previously approved revision amounts. Also, CIID should fully utilize the Fiscal Impact Statement to disclose needed contract fiscal information for City Council.
Develop a System fore found some examples of contracts and amendments not ConSturabcmti-sRseiloanteoding attached to City Council Agenda Item forms for Documents to theconvenient reference. We also found other occurrences that City Clerled to the conclusion that procedures should be adopted to Page 32ensure City Council receives the necessary information for approval and to assist the Clerk’s office to maintain the necessary contract-related documents. e recommend that the City Clerk assistthe City Attorney’s
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Office in developing a system and guidance to ensure that the Clerk’s office receives all of the appropriate contract-related documents.
Define theCity Council often approves a 10% ―contingency‖ amount Requirements forabove the contract price for construction contracts, generally Designating and Change Orders to rfor unforeseen circumstances, to allow f Utilizing Contingencyo Amountsapproved by the Public Works Director, as timely approvals Page 34for changes may be needed to avoid costly consequences. In addition, it is not unusual for construction-related contracts to include amounts within the contract price that are designated as ―owner controlled contingency‖ amounts, generally to allow the City to make changes during the course of the contract performance. Before either type of contingency is used, the contractor is required to justify and have it approved by CIID management and the Public Works Director.
The contingency amounts tend to range from $100,000 to over $2 million, and generally are greater than the $50,000 that the Director of Purchasing is generally allowed to approve for other types of contracts. Although a 10% contingency is common in government, some jurisdictions have a 5% limit. e also noted that a 10% contingency amount is sometimes approved for contracts entered by Purchasing.
e recommend that CAO and the CFO ensure that City Policies and Procedures define the requirements for designating and utilizing contingency amounts for City contracts including any required caps and a ―check and lance‖ approval process.
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Define the Conditions firms have been awarded contracts which are then Some for Renewal orextended for many years. While no improprieties were noted, Extension o Consultantthe incorporation of standardized terms and conditions for Agreementsrenewal would provide direction to staff for the issuance and Page 38renewal of contracts. We recommend that the CAO and the CFO ensure that City Policies and Procedures: delineate when a Change Order is appropriate to perform additional work ithin the contract scope; and clearly define the conditions for extension of consultant agreements.
Ensure ChangeChange Orders (amendments to construction contract ROrdueersstsandChangeprovisions) and Change Requests (interim documents eqaPrreocTiemsseelydcombined to create Change Orders) must be approved by the contractor and several CIID management levels before Page 39proceeding with the change. We learned that it is a best practice to have these change documents approved by all levels very quickly after they are identified, and before the associated work is performed. We found instances of substantial delays in: approvals by CIID personnel, grouping of Change Requests to create Change Orders, and submission of Change Requests by the contractor.
recommend that the CAO and the CFO ensure that City Policies and Procedures provide guidance to determine dollar limits, timeframes and approvals to process Change Orders and Change Requests, and provide that Change Requests are properly approved before related work is performed.
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